Working a business as a retailer is like walking a fine line. You have only so much inventory room and only so much to spend on your supply stock. You have to keep up with the game of meeting the demand for your customers, while not overspending on your supply. How do you effectively budget for your supply sourcing?
Risks of Not Budgeting
Failing to budget for your retail stock could result in disaster for your business. You must remember that you are in business not just to make a profit, but to remain solvent. Some retail business owners think that the more they have to sell, the more money they will make. Unfortunately, this kind of thinking gets them into trouble, especially when sales are lower than expected and the cash flow is stymied.
You must be prepared to lose the money you put into buying your retail stock. Should anything go disastrously wrong, such as damaged goods during transport, closure of your storefront by your landlord, or the demand for a product is eliminated, are you prepared to afford the loss on your existing retail stock? If you can say yes to this question and know that you still might be able to regroup your business, then you are practising sound budgeting.
Inventory Budgeting Tips
- Look at your product sales history – You should be able at any time to review a specific product and determine how many items are sold on a daily, weekly, monthly, and yearly basis. Using a barcode system is ideal for keeping track of item sales in a database. If you do not have a database system in place, create one so you will have access to these important records that help you make sound budgeting and spending decisions.
- Look for sales trends – When you review your product sales history, look for trends. Does a specific product sell regularly year-round? Does it sit on the shelf for most of the year and fly out of the store during the year-end holidays? Knowing when a product sells the most will help you make the proper buying decisions for keeping it in stock.
- Buy bulk items only when you know they will sell – Buying in bulk can save money. But will you be able to resell the items in a reasonable amount of time? Buying a gross of a particular product may save money per item, but will it help you make money by sitting in storage or in your inventory for a long time? Be sure you can sell it before you buy it in bulk.
- Try drop shipping – The ideal retail situation would be to not spend any money on a product up front. Wholesale drop shippers may offer the service of shipping an item directly to the end customer, and you only pay for the item when it is sold. Though this method may cost a little more per product, you save money in your bank account and keep your cash flow moving steadily.
Learn how to budget your retail supply stock wisely, as overspending can be disastrous. Keep your spending on an even keel with your sales, and you will enjoy a prosperous retail business.